BANGALORE: Flipkart and Myntra are close to a deal which could either be an acquisition by India's largest online retailer or a partnership between the two companies. "The companies are in talks for a commercial partnership, but an acquisition is also on the table," said a person with direct knowledge of the discussions. "All options are being explored." The two companies have three common investors — early stage investor Accel Partners, hedge fund Tiger Global and Belgium-based family office Sofina.

Accel and Tiger have been pushing for a merger for a few months according to several people with knowledge of the developments. However, Myntra's founders have not been too keen to conclude an outright acquisition. "They will prefer a financial investment where they can operate as a separate entity," said a person, who has worked as a consultant with Flipkart and Myntra.

Between a merger with Flipkart and a new round of funding led by Wipro chairman Azim Premji's family office Premji Invest, Myntra opted for the money in February. The company raised $50 million (aboutRs 300 crore) at a valuation of about $200 million (about Rs 1,200 crore). At the time of the investment, Bansal had refuted reports of a possible merger with Flipkart saying the two companies followed different models.

However, he had conceded there was merit in exploring ways to work together and take on competition. Amazon, which has rapidly built a presence in India since June last year, is expected to start selling apparel later this month.

However, in the two months since the Premji Invest funding, Myntra's other investors too seem to have fallen in line with the view held by Accel and Tiger. An investor in Myntra was of the view that founders prefer to "grow the company" instead of selling. Myntra, he said, offered multiple choices for exits to investors from a strategic sale to even an IPO. "It is all possible," he said. Flipkart and Myntra declined to comment.

If a merger does happen it could take two forms, said experts. One would be a complete business merger like Flipkart did with electronics e-tailer Letsbuy in 2012. Post the acquisition Letsbuy ceased to exist.

The other model, which is what Myntra's founders are hoping for in the event of a merger, is a financial merger. "In my personal view, for Mukesh Bansal, unless there is a compelling financial reason, a merger with a multi-category player does not make sense," said Arvind Singhal, chairman of retail advisory Technopak. "The proposition Myntra has built for themselves as a niche fashion player, they can go a long way on their own."

The financial model is the one followed by Amazon when it acquired Zappos in 2009, which even now runs as an independent company. However, in both models, the combined entity, which will share multiple resources, will require less cash for operational expenses.

Flipkart has raised $560 million (about Rs 3,350 crore) so far and while it has recorded sales of $1 billion (about Rs 6,000 crore) this fiscal, it is not yet profitable. Myntra, which has raised $125 million (about Rs 745 crore) so far and is estimated to have sales of Rs 1,000 crore this fiscal, aims to turn profitable by year-end. For Flipkart too there are gains. It will have one less competitor to worry about in the lucrative fashion category. Flipkart entered the apparel segment in 2012 with huge ad campaigns. However, Myntra has managed to stay ahead of competition so far.